Indonesia: Effects on markets of the COVID-19 outbreak – UOB


Economist at UOB Group Enrico Tanuwidjaja reviewed the implications of the coronavirus outbreak on the Indonesian markets.

Key Quotes

“Indonesia’s financial assets, in particular its sovereign bond market has had a remarkable run in 2019, recording a full-year inflows of close to USD12bn (this is comparable to strong inflows in 2014 and 2017). A combination of rate cuts, stable inflation, and relatively attractive yield differences between Indonesian and two other safe-haven sovereign bonds (the German Bunds and US Treasuries) have continued to attract global inflows into the Indonesian bond market.”

“Historical precedence suggests that Indonesian bond market and the rupiah were hardly moved or affected negatively during viral outbreak episodes such as during the 2003’s SARS (severe acute respiratory syndrome) and the 2012’s MERS (Middle-Eastern respiratory syndrome). Instead, we think that Indonesian assets and the rupiah are more outflows sensitive to financial market shocks such as the 2013’s Fed Taper Tantrum and 2015’s CNY devaluation. This suggests that given the shallowness of the Indonesian financial markets, we are more prone and very sensitive to financial shocks compared to other type of shocks, such as the virus outbreak shock.”

“We are of the view that given the measured pace of narrowing in the current account deficit (CAD), the recent strong inflows coupled with stellar appreciation of the IDR might not be sustainable.”

“The best illustration to explain the current situation is that Indonesian assets are experiencing a very intense tug-of-war between the enticing yield differentials that encourage continued inflows and the underlying CAD position that necessitates gradual depreciation of IDR and more measured inflows into the asset markets – with the former winning at the moment.”

“Going further into 2020, we are of the view a more expansionary fiscal policy to support growth recovery, inflation risks amidst higher administrative prices, and potentially a pause in Bank Indonesia’s rate cutting cycle, bond assets and the rupiah are likely to consolidate lower from the recent stellar rally. Should the containment of the 2019-nCoV be speedier than expected, we could probably expect the global growth recovery to resume in 2020 and would support a case more for a more pronounced equity market rally.”

 

FXStreet Indonesian Site - new domain!
Access it at www.fxstreet-id.com

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!


Latest Forex News

Editors’ Picks

USD/JPY seesaws around 107.00 amid coronavirus-led risk-off

USD/JPY remains on the back foot amid the early Thursday morning in Asia. The Japanese yen benefits from its safe-haven allure while being the only major to gain versus the US dollar during the current tough time.

USD/JPY News

AUD/USD remains under pressure below 0.6100 as markets stay defensive

AUD/USD fails to cheer better than forecast activity numbers from home and China. Globally rising coronavirus cases, extended lockdowns in Europe and grim words from key policymakers favor risk-off. 

AUD/USD News

Gold building a bullish case as COVID-19 reigns

The gold price has lost some bullish support of late as the US dollar moves higher, ending the last quarter on the front foot as a relatively illiquid market sees exaggerated moves adding to the upside support. 

Gold News

WTI pierces $21.00 as US fuels hopes of supply disturbance/control

While extending its recovery moves from the previous day, WTI clears the $21.00 mark, with a high of $21.20, while taking rounds to $21.10 during Thursday’s Asian session. The US leader expects Russia-Saudi Arabia “to work it out.”

Oil News

Dollar Shrugs Off ISM & ADP in Fear of Ugly Jobless Claims

If the first day of April is a taste of what's to come, it will be a very rocky second quarter. After falling more than 24% between January and March, the Dow Jones Industrial Average plunged opened down more than -700 points. 

Read more

Forex MAJORS

Cryptocurrencies

Signatures